Review Study Guide
An intangible asset _________
derives its value from the rights and privileges of its owners.
The double entry system requires that each transaction must be recorded in _____
in at least two different accounts
Accounting communicates financial information about a business to both internal and external users.
True
An account is a standardized format used to accumulate the effects of transactions on each financial state item
True
Assets on the balance sheet are recorded at historical cost or their exchange value TF
True
What is the modern def. of accounting
The information system that indetifies records and communities the economic events of an organization to interested users.
On a classified balance sheet companies usually list current asset in
The order in which they are expected to be converted into cash.
The normal balance of any account in on what side?
The side which increases the account.
Receipts from customers that are given in advance are not treated as _______
revenue. Revenue cannot be recognized until the work is performed.
Name the accounting Equation
Assets= Liabilities +Stockholders Equity
A business organized as a corporation is owned by it's ________
Stockholders
Accounting measures and reports financial data for profit making businesses as well as not for profit organizations.
TRUE
The liability of corporate stockholders is limited to the amount of their investment. TF
TRUE
An income statement presents the revenues expenses and net income or net loss of the business for a period of time. TF
TRue
Transactions have a dual economic effect on the fundamental accounting midel
TRue
The separate entity assumption assumes a stable monetary unit
False
When a company borrows money from a bank, it leads to a cash inflow from an investing activity.
False
Revenue received before it is earned expenses paid before being used or consumed are both initially recorded as liabilities.
False
3 Steps to the Accounting Process
. Identify the relevant economic activity 2. Quantify these activities 3. Record the results
The purchase of a delivery truck for cash increases assets and stockholder's equity
False
Accrued Revenues are revenues that have been received but not yet earned.
False
Normally, asset accounts will have credit balances and liability accounts will have debit accounts
False
Liabilities =
Are debts and obligations.
The cost of assets consumed or services used is also know as _______
As an expense
Three Types of Business Activities
Financing Investing Operating
Issuing new shares of common stock will______
Increase common stock
Name two external users of accounting information
Investors and Creditors
Resources owned by a business are referred to as _______
assets
Stockholders equity =
owners on total assets
A big advantage of corporations relative to partnerships and sole proprietorships
the fact there's a reduced legal liability for investors.
The Balance Sheet indicates
whether the company relies on debt or stockholder's equity to finance its assets.
Which of the Following is not an asset? Equipment, Dividends, Accounts Recievable, Inventory.
B. Dividends
Things that are Retained Earnings
Beginning Balance, Revenues, To find: Revenues- Expenses. Then Subtract dividends to find Retained Earnings.
Things that are Assets
Cash Investments Accounts Receivable Prepaid Accounts Equipment/Property
Declaring a cash dividend will
Decrease retained earnings
What has an effect on retained Earnings
Expense Dividends Revenues. Land purchase WILL NOT have any effect.
The accounting period in which service revenue is recognized is generally the period when cash is collected. TF
FALSE
The retained earnings account is classified on the balance sheet as a liability.
FALSE
When a company ships products to a customer and bills the customer the company should not recognize revenue until the cash is collected. TF
FALSE
One of the disadvantages of a corporation when compared to a partnership is the limited liability of the owners. TF
FALSE, Although there is protective liability over some of the owners the company, (Stockholders)
TF: A business organized as a separate legal entity owned by stockholders is a partnership.
FALSE. A Corporation is a separate legal entity owned by stockholders. A partnership is A voluntary association of two or more persons for the purpose of conducting a business.
A paid dividend will do what to assists and stockholders equity?
It will decrease assets and stockholders equity.
The primary purpose of the balance sheet is to _____
Report the financial position of the reporting entity at a particular point in time.
Revenue has the the effect of increasing what?
Retained Earning
Net Income =
Revenues > Expenses
Expenses are incurred to _______
To generate revenues
Expense recognition often follows revenue recognition.
True
Liabilities are recorded in their order of maturity meaning when they will paid or satisfied by providing goods or services.
True
TF: For account purposes, business transactions should be kept separate from the personal transactions of the stockholders of the business
True
The balance sheet reports assets and claims to those assets at a specific point in time,
True
The payment of a cash dividend to schokholders reduces stockholders equity TF
True
The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company for a specific period of time.
True
The revenue recognition principle and the matching principle are helpful guides used in determining net income or net loss for a period.
True
The revenue recognition principle dictates that revenue be recognized in the accounting period in which it is earned.
True
the cash account is debited shen stock is sold to investors and a stockholders equity is credited.
True
If the assets owned by a business total 100,000 and liabilities total 70,000 stockholder's equity totals 30,000. TF
True. Assets = 100. Liabilities =70. 100-70.